If Polkadot’s future on-chain governance is controlled by a particular party, what do you think their governing program might be?
Let’s use the current situation of Polkado as a background to propose a hypothetical governing program to address many of Polkadot’s current challenges.
TL;DR:
1. Control Inflation: Modify Polkadot’s overall inflation rate from 10% to 5%, with some burning mechanisms expected to ultimately adjust the inflation rate to around 4%.
2. Adjust Treasury Revenue and Expenditure:
- Launch a governance roadmap for OpenGov that runs parallel to the official roadmap, ensuring all treasury fund expenditures align with this roadmap, or they will not be supported.
- Divide the treasury into new annual funds and accumulated funds, ensuring that the annual expenditure does not exceed the new annual funds, guaranteeing a surplus each year.
- Use the new annual funds across various areas such as technology development, education and training, publicity, activities, investment, governance, auditing, and most importantly, ecosystem construction.
- Establish different fellowships to manage these areas. Certify necessary public interest infrastructure for each area and prioritize support to ensure comprehensive basic operations of Polkadot and provide a stable foundation for its continuous operation.
3. Address the Sell Pressure from Treasury Expenditure: Promote the deployment of a public welfare fork application of MakerDAO, developed and maintained by the Technical Fellowship on Polkadot. Any treasury proposal funds will have DOT over-collateralized into this application and generate stablecoins, ultimately paying the proposers in stablecoins.
4. Accelerate Ecosystem Development with Airdrops: Conduct airdrops for loyal users who actively share Polkadot content, participate in Polkadot governance, and engage in on-chain interactions. Reward more loyal fans and distinguish them from general speculators.
5. Promote DOT-Based Ecosystem Development: Encourage the development of projects that build business models around DOT, providing more use cases and empowerment methods for DOT.
6. Attract More Applications to Deploy on Polkadot: Introduce policy incentives for mature application teams and emerging project teams to deploy on Polkadot. Provide appropriate tools and establish comprehensive processes to help mature applications from other ecosystems quickly deploy on Polkadot. Offer a complete solution to assist traditional enterprises in exploring Polkadot.
7. Establish a Feedback-Iteration Mechanism to Keep Polkadot Progressing: Create a feedback mechanism for Polkadot to collect current shortcomings at various levels, convert these issues into specific task goals through different fellowships with targeted bidding, and use treasury funds to support proposals that offer solutions. This ensures that Polkadot can continuously identify and solve problems, maintaining its forward momentum.
8.Keep Polkadot Technologically Advanced and Become the Hub Connecting Various Chains: Invest in and incentivize cutting-edge technology, build and promote bridges, and encourage projects to re-integrate into the Polkadot ecosystem.
Below is the full program:
Polkadot Governance Program
Chapter 1: Controlling DOT Inflation
Currently, DOT experiences an annual inflation rate of 10%. The treasury burns 1% of DOT every 24 days, and with the introduction of Agile Coretime, the revenue from Coretime will also be burned. Under these burning mechanisms, the annual inflation rate of DOT will ultimately be less than 10%. However, in the short term, these burns are relatively small compared to the total inflation, so DOT inflation remains high.
High inflation can lead to several issues:
① Impact on DOT Holders
DOT holders can be divided into two groups — those who participate in staking and those who do not. Non-staking holders, may be concerned about high inflation devaluing their DOT over time. This concern might drive them towards short-term trading rather than long-term holding, increasing selling pressure. Additionally, this might deter potential buyers, weakening demand for DOT. On the other hand, although staking participants benefit from staking rewards exceeding inflation, the weakened buying pressure could result in DOT’s price dropping more than the additional rewards earned from staking (when tokens cannot be unlocked), ultimately leading to a net loss for stakers.
② Staking Returns vs. Ecosystem Participation
The staking rewards are too high, making it difficult for many applications within the Polkadot ecosystem to offer returns that surpass this rate. As a result, users are more inclined to participate in staking rather than engaging with these ecosystem applications, which could hinder commercial development within the ecosystem.
③ Stunted Ecosystem Growth
Due to the high staking rewards, ecosystem development slows down as users primarily engage in staking. Despite high Total Value Locked (TVL), there is limited application, capital, and user activity within the ecosystem. This lack of network effects could discourage developers from deploying on Polkadot or even cause existing developers to leave for other blockchains with stronger network effects, aiming to increase their chances of success.
Thus, high DOT inflation is widely recognized as a major factor affecting both price and ecosystem development.
Proposed Measures:
Reduce the total inflation rate of DOT from 10% to 5%. Allocate 1% of this inflation to the treasury (in line with a recent RPC to direct 20% of the inflation rate to the treasury) to ensure a minimum amount of DOT enters the treasury annually and prevent its depletion. The remaining 4% will be distributed based on the difference between the actual and ideal staking ratios, resulting in staking rewards of less than 8%. The surplus will continue to enter the treasury.
Ultimately, due to other burning mechanisms, the final annual inflation rate of DOT will be below 5%, with the potential to reduce it further to below 4% in the future through Coretime revenue burns and other mechanisms.
Explanation:
Q1: Why not implement a fixed cap on DOT, such as a maximum supply of 3.14 billion DOT with a gradually decreasing growth rate to reach this cap?
A1: The economic model of Polkadot must consider both inflation and how to balance it with ecosystem development. Given that the success of most mainstream public chains/Layer 2 solutions relies on the robust growth of DeFi in the early stages, which later evolves into a broader ecosystem, and since blockchains are fundamentally value-transfer networks, we believe DeFi development is crucial to both Polkadot and other chains.
Many DeFi projects and applications are designed with percentage-based returns, so we strongly recommend maintaining a “percentage-based inflation” model for Polkadot. A fixed or gradually decreasing inflation rate could undermine the fundamental returns of many DeFi projects.
Q2: Why adjust the inflation rate to 5% instead of another number?
A2: On one hand, a fixed percentage of inflation must be allocated to the treasury to ensure adequate funding and prevent treasury depletion. From a traditional financial perspective, an inflation rate of 2–3% is considered moderate and conducive to economic development. Central banks, like the Federal Reserve and the European Central Bank, often target around 2% inflation.
Therefore, setting the total inflation rate at 5% and reducing it to 4–5% with existing burning mechanisms aligns with traditional financial practices. As Polkadot develops, further burning may reduce the inflation rate to around 3%.
Chapter 2: Adjusting Polkadot Treasury Revenue and Expenditure
Polkadot treasury currently faces high expenditures with minimal income. To ensure sustainable growth, it is crucial for the Polkadot treasury to maintain a sustainable income stream. The revenue adjustment has already been implemented, ensuring that 20% of the inflation rate will be fixed into the treasury, providing a minimum annual income. Our core objective is to ensure sustainable expenditure of the treasury.
Proposed Measures:
① Developing a Governance Roadmap for the Treasury
Polkadot’s official development follows its upgrade roadmap. Similarly, decentralized treasury management for Polkadot’s growth requires its own governance roadmap.
We will create an annual governance roadmap for the treasury, which will cover a financial plan for four quarters, each focusing on specific goals for the use of treasury funds.
We should view the treasury funds in two parts: annual new funds (from inflation, fees, slashes, etc.) and previously accumulated funds. The financial plan will primarily use the annual new funds, ensuring that the expenditure does not exceed 95% of these funds to guarantee a surplus that contributes to the accumulated funds.
The goal of the Polkadot treasury is to use decentralized governance to manage funds as a project would manage its operations. Having navigated a somewhat chaotic period since the introduction of OpenGov, we have experimented with various initiatives. Some have proven effective, while others have not. It is time to identify and continue supporting effective initiatives.
We will promote the establishment of different Fellowships to drive various directions, such as technology development, education, marketing, events, investment, governance, auditing, and most importantly, ecosystem construction. Each Fellowship will have a corresponding budget, and the total budget across all Fellowships will not exceed 95% of the annual new treasury funds. This approach prevents uncontrolled and unplanned treasury spending.
The roadmap will define the focus for each quarter, adjusting budget proportions accordingly. The available funds each quarter will be based on the previous quarter’s new funds.
② Certifying Essential Public Goods
Businesses have multiple departments; some are responsible for generating revenue while others handle expenditures. It is unrealistic to expect all departments to be profitable, and the same applies to project operations.
The same goes for certain teams supported by the Polkadot treasury. Although these teams may not have the capability to be self-sustaining or break even, they play a crucial role. Expecting these teams to be self-sufficient is very challenging, and without their support, basic operations would be affected. Therefore, the functions or services provided by these necessary and critical teams should be classified as public goods infrastructure.
This includes data websites, some tools, community and media organizations across languages, technical training, hackathons, etc., which provide the necessary support for Polkadot’s basic operations. The treasury should also provide long-term support for such projects to ensure that the fundamental operations of Polkadot are more comprehensively protected, thereby providing a stable foundation for its ongoing operation.
Regardless of whether they are developers, users, or investors, the recognition of a project is based on two key aspects. First, whether the project has a sustainable and stable development path and the capability to execute it reliably. Second, whether the project has the potential for significant growth that can lead to substantial returns.
The certification and support for public goods infrastructure are essential for ensuring that Polkadot can grow steadily and sustainably, thereby instilling sufficient confidence in people regarding Polkadot. The following sections will elaborate on how to enhance Polkadot’s development potential.
③ Establishing Treasury Governance Standards
We will introduce a standardized framework for treasury proposals, enabling any applicant to follow it and prevent easy rejections due to insufficient information.
Additionally, we will improve feedback on treasury proposals, providing more detailed responses such as support for the proposal’s intent but not the requested amount, support for the amount but not the intent, or full support or opposition. This will facilitate further adjustments and communication by the proposal applicants.
It is crucial to inform all proposal applicants that their proposals must align with the annual governance roadmap. Proposals that do not conform to the roadmap will not be approved.
This ensures that treasury funds are used according to the development framework outlined in the roadmap.
We will work towards consensus among major Whales to bring orderly development to Polkadot’s decentralized governance, preventing unnecessary expenditures and potential corruption.
We need order, not chaos.
Chapter 3: Addressing Treasury Sell Pressure
Having resolved the income and expenditure issues of the treasury, we now face another challenge: the selling pressure caused by treasury expenditures. According to the design mentioned in our program, the treasury may spend about 1% of its total funds each year, which could result in selling pressure of over a hundred million dollars or more. As the price of DOT increases, the selling pressure will also grow, indicating that this pressure could have a suppressive effect on price growth.
However, the treasury is a vital source of funding for Polkadot’s sustainable and steady growth. Therefore, addressing the treasury sell pressure is an important issue that must be given sufficient resources to resolve.
Proposed Measures:
We propose promoting the development and maintenance of a non-profit MakerDAO fork application on Polkadot by the Technical Fellowship. Any proposal funds requested from the treasury will require DOT to be over-collateralized in this application and generate stablecoins, which will ultimately be used to pay the proposal recipients.
This application will operate as a public good infrastructure continuously. Implementing this application will not only address the treasury sell pressure but also lock up a significant amount of DOT.
The stablecoins generated will be used to pay treasury expenses and can be widely utilized in other DeFi projects such as lending protocols and DEXs, increasing interactions and TVL in these projects. This could become a key step in activating Polkadot’s DeFi ecosystem.
Furthermore, these stablecoins could be integrated with the newly launched Polkadot Pay, which is widely used in more commercial scenarios. Moreover, these stablecoins can accrue interest, incentivizing users to hold or generate more stablecoins. This provides additional yield-generating assets for the Polkadot ecosystem and, in turn, indirectly locks up more DOT. As the demand for commercial applications using stablecoins or user needs increases, the value of DOT can also be further enhanced.
Explanation:
Q1: Why use stablecoins to solve this problem?
A1: Stablecoins eliminate sell pressure and address the limitations of a single-coin system. If the Polkadot ecosystem relies solely on DOT for various scenarios, fluctuations in DOT’s price will affect commercial operations. Ideally, commercial operations should depend on supply and demand rather than price volatility. Just as in traditional stock markets, a company’s normal operations are not directly affected by stock price changes.
Similarly, crypto assets should function in the same way. Therefore, it is necessary to introduce a decentralized stablecoin backed by DOT to provide a stable circulating asset for more commercial scenarios. Even if DOT’s market performance is poor, if the supply and demand in the commercial sector remain unchanged, there will still be a continuous demand for this stablecoin.
The successful operation of these businesses will, in turn, support the value of DOT. If the business performs well and there is greater demand for the stablecoin, it will incentivize more DOT to be used for generating stablecoins, creating a positive feedback loop. Even when DOT experiences a downturn, the businesses within the ecosystem will empower DOT.
Q2: Why not use other stablecoin solutions instead of a MakerDAO-like approach?
A2: Previously, there were attempts to use HydraDX (now renamed Hydration)’s DCA function to exchange some DOT for USDT and USDC. However, this method still involves transactions and results in some sell pressure. Before establishing the stablecoin protocol, it is possible to use some transitional solutions within the ecosystem, such as Hydration’s HOLLAR.
Chapter 4: Launching Ecosystem Airdrops to Accelerate Development
In the current blockchain industry, both chain-level and application-level projects often design airdrops and other incentives to encourage active user participation. Given that users have limited attention and resources, Polkadot should also introduce ecosystem airdrops to compete in the market. In addition, we will design various mechanisms centered around the logic of airdrops to reward more loyal fans, distinguishing them from general speculators.
Proposed Measures:
With a fixed minimum treasury income now assured, we will allocate a fixed proportion of the annual treasury inflows to support ecosystem development through airdrops. These airdrops could utilize the decentralized stablecoin mentioned in Chapter 3 or unlock DOT per block (to minimize sell pressure).
Polkadot is currently less active on the most vibrant social platform in the crypto space, X (formerly Twitter), and there is little discussion about Polkadot. Most content is found on official forums, Polkassembly, and Github. On the other hand, treasury proposals are increasing, but many proposals require substantial effort from voters without additional rewards.
Therefore, we will conduct airdrops for users who actively share Polkadot content and participate in Polkadot governance.
Most importantly, we will airdrop users who actively interact on-chain with Polkadot. In 2021, many emerging chains launched chain incentives and partnered with well-known DeFi projects to provide multi-layered airdrops, achieving a cold start for their ecosystems in favorable market conditions. Similarly, we will launch chain incentives and collaborate with applications at the right time to develop the ecosystem.
Chapter 5: Promoting DOT-Based Ecosystem Development
Polkadot’s growth is not solely dependent on its technical development and operations. By examining the development experiences of various public chains, we can conclude that encouraging the development of ecosystems centered around the chain’s native token is crucial for enabling the chain through ecosystem growth. Dot-based projects in the Polkadot ecosystem are those that build business models around DOT. These projects can be:
① Indirectly based on DOT: These projects do not use DOT directly but build scenarios around existing DOT users (addresses). The most straightforward method here is distributing new project tokens to DOT holders.
② Increased DOT interaction/payment scenarios: These projects require DOT for their business models, either as a payment method or for burning DOT received through payments. For example, Polkadot’s upcoming Coretime market will burn all DOT revenue from sold core time.
③ More DOT staking scenarios: These projects help lock up DOT liquidity by using DOT as collateral in DeFi protocols. Encouraging the development of such projects is essential.
④ Using DOT-based stablecoins: As mentioned in Chapter 3, decentralized stablecoins backed by DOT will be integral.
Proposed Measures:
We will utilize targeted airdrops, as discussed in Chapter 4, to incentivize the development of this ecosystem direction. Additionally, more funds and incentive measures will be introduced.
Projects that actively engage users in on-chain interactions and generate substantial transaction fees for the treasury will also receive encouragement and support. This approach aims to increase treasury revenue without altering the inflation rate. We will also support these projects through treasury proposals.
Chapter 6: Attracting More Applications to Deploy on Polkadot
Given Polkadot’s current development stage, we aim to encourage more applications to deploy and build on JAM. However, before that, we will support applications that will deploy on Plaza as a transition. For more details about Plaza, refer to: Proposing the Plaza: A Batteries-Included, Scalable Polkadot System Chain https://rob.tech/blog/plaza/
Proposed Measures:
① Incentive Policies for Deployment
Implement policies to reward mature application teams and emerging projects that deploy on Polkadot. These rewards can be partially allocated to the application teams and partially to their users, and this can be integrated with the solutions proposed in Chapter 4.
② Deployment Tools and Processes
Develop appropriate tools and establish comprehensive processes to help mature applications from other ecosystems quickly deploy on Polkadot.
③ Solutions for Traditional Enterprises
Launch a comprehensive set of solutions to assist traditional enterprises in exploring opportunities on Polkadot.
Chapter 7: Establishing a Feedback-Iteration Mechanism to Keep Polkadot Improving
Polkadot currently lacks a direct feedback mechanism, which has resulted in substantial spending from the treasury without addressing many core issues.
Proposed Measures:
We will establish a feedback mechanism for Polkadot to gather deficiencies in various areas such as technological development, education and outreach, business expansion, user experience, project operations, economic models, and governance. Issues identified through feedback will be converted into specific tasks by different Fellowships through targeted tenders or other methods. Proposals that offer solutions will be supported with treasury funds to ensure that Polkadot continuously identifies and addresses problems, ensuring its ongoing progress.
Chapter 8: Maintaining Polkadot’s Technological Advancement and Becoming a Hub for Interoperability
Polkadot needs to be more open to accepting and investing in new technologies, incorporating the latest advancements from the entire crypto industry into its ecosystem. Even if these technologies come from other public chains, they should be integrated into or connected with Polkadot to ensure its technological leadership. For example, cutting-edge technologies like ZK and account abstraction, as well as products like Solana’s Blinks that support massive adoption, should be considered.
Proposed Measures:
① Invest in and Incentivize Cutting-Edge Technologies
We will invest in and incentivize projects and tools that incorporate cutting-edge blockchain technologies within the Polkadot ecosystem. This includes supporting compatibility with various smart contract languages and applications utilizing these advanced technologies.
② Develop and Promote Bridges
We will advance the development of Snow Bridge and HyperBridge within the Polkadot ecosystem, which can enable more projects to build applications through these bridges and make Polkadot the central hub connecting different blockchain islands.
③ Reintegrate Projects into the Polkadot Ecosystem
Many projects have moved to blockchains with stronger network effects to increase their chances of success. However, these projects have technological foundations and user bases. If we can bring them back into the Polkadot ecosystem and facilitate liquidity between different chains, we can help these projects, which have gained momentum on other blockchains, redirect their influence and users back to Polkadot.
Afterword
Our “party platform” serves as a supplementary guide to address the remaining issues within Polkadot. While it is a preliminary draft and meant to inspire better solutions from the community. If we’re lucky enough to see it come to fruition, we hope Polkadot will indeed become better as envisioned.
If you have any thoughts and suggestions regarding this party program, please feel free to share your opinions in the comments section. We look forward to working together with everyone to advance the development of Polkadot governance.
For more details on the background and outlook of this article, please see the full article: https://medium.com/p/8990371d6447